Councils could be at risk of losing a total of more than £1bn because of the collapse of Icelandic banks, the Tories claimed today.

Eric Pickles, the shadow communities secretary, produced the figure ahead of a meeting this afternoon between ministers and members of the Local Government Association to discuss the problem.

The BBC said this afternoon that it had already identified more than 80 councils and police authorities that between them could lose more than £700m.

One authority - Kent county council - has £50m deposited in Icelandic banks.

In an interview with BBC Radio 4's Today programme, Pickles said total losses "could be £1bn or [they] could be more".

He went on: "I know of at least two district councils that have £9m and £11m each [deposited in Icelandic banks] and that's not far short of three-quarters of their total annual budget excluding housing."

Later Pickles issued a statement saying: "The government is continuing to dither in the face of a worsening problem. Hour by hour, it is clear that more and more councils have been exposed to the meltdown in Iceland's banks.

"Councils have literally billions on deposit. If they now all panic, pull their money out and put it in the safest option like government bonds, there will be adverse consequences. The withdrawal of a huge amount of money from the banking system will destabilise it further and harm liquidity."

Today the prime minister's official spokesman said the government was willing to discuss the problem with local authorities "to see if we can find a way though".

He said: "The government does understand the situation that they [the councils] are in. We have had difficulties getting complete clarity from the Icelandic authorities for all UK depositors."

The spokesman said the government would like to find "a constructive and cooperative" way forward with Iceland, but he added: "As the Local Government Association themselves have said this will have no impact on local services."

Pressed on whether the government would extend its guarantee to the Icelandic banks, the spokesman said: "We are trying to extract information from them [the Icelandic authorities] about the scale of the deposits. We need to established what the facts are."

Treasury ministers Stephen Timms and Ian Pearson and local government minister John Healey were meeting the LGA this afternoon to discuss the situation.

Mark Wallace, campaign director at the TaxPayers' Alliance, said: "People will be shocked that the councils had this money stashed away in the first place.

"The fact that they have invested this money and seem to have lost it is even more shocking and is sadly yet another reminder of the poor financial management in local councils."

But Edward Welsh, of the LGA, insisted councils acted along "prudent lines" by spreading their money across several financial institutions at home and abroad.

Welsh told BBC Breakfast: "Councils are large employers, they have large wage bills to pay off, they collect large amounts of money in council tax.

"The reason why this money has been put in these banks is to try to reduce risk by putting their money in as many banks as possible.

"In a world where the global banking system is under such enormous pressure, it's perhaps not surprising that a council has been caught out in this way."

He said councils follow government guidance and use independent financial advice but the financial "world is changing as we speak".

He said of the money: "We don't know it's lost, we know it's at risk. That's why we are speaking to the Treasury, that's why we want to find out what we can do to try and get that money back."

The LGA has urged the government to guarantee them against any losses.

The chancellor, Alistair Darling, announced yesterday he would protect the savings of private investors in Icelandic banks.

He said local authorities were "more of an informed investor".

"But this situation is evolving, we are trying to sort the matter out with the Icelandic government," he said

Brown promised legal action against the Icelandic authorities to recover the funds.

The Conservatives said town halls faced a "massive financial shock", threatening council tax hikes or cuts in local services.

The LGA insisted that frontline services should not be affected by any losses.

London public authorities are thought to face exposure of around £200m, according the umbrella organisation London Councils.

The LGA deputy chief executive, John Ransford, said: "This is a very fast-moving situation. It is changing all the time, and we need to talk to government to make sure we act sensibly in the interests of local taxpayers and making sure services are preserved.

"This is public money - it's your money and my money - we need to treat this in exactly the same way as individual investors in these banks."